Essential Fintech Reading: Oct 10-16

The ability to use their smartphone camera for service enrollment, identity verification or data capture is a critical factor in determining who millennials do business with, reports Jim Marous for the Financial Brand. 68 percent of millennials would prefer to use mobile capture instead of manually entering information, 54 percent report making mobile deposits in the last year and 83 percent think mobile capture will be a part of all mobile transactions within five years. "Businesses that want to attract millennial consumers will need to take notice of these findings and add more mobile capture functionality to their applications and services, because simply providing a mobile app isn’t enough anymore," writes Marous. MasterCard has taken heed, as it will soon roll out a "pay by selfie" feature that allows retailers to verify an online shopper's identity.

Mobile payment startup Square made its IPO prospectus public, capping a busy week for CEO Jack Dorsey, who will be returning as CEO of Twitter. While Square's revenue increased by 54 percent to $850 million last year, its losses also increased to $154 million. Dorsey faces questions as to whether he can juggle both CEO roles and take a money losing company public. Inc. magazine's Maria Aspan notes that 95 percent of Square's revenue comes from processing payments and that this is a notoriously low margin business, as Square burns two-thirds of every dollar it brings in. "Square’s transaction costs-to-revenue breakdown (is) consistently more than 60 percent. As a rough comparison with a much more established competitor, PayPal’s transaction efficiency ratio is 30 percent: It spent $1.2 billion on transaction costs in the first six months of 2015, to process $3.9 billion of payments," writes Aspan. Square has cost itself dearly by paying the interchange fees charged by banks and credit card networks.

Worldpay, a payment processor that was once part of Royal Bank of Scotland, saw shares gain ground upon its Tuesday IPO. Meanwhile, across the ocean First Data saw shares fall by 1.5 percent as the company returned to a public listing. The market outcomes were quite different for two of the five biggest payment processors in the world. Worldpay has been priced at 22 times net profits forecast for 2016, 16 times earnings before interest, tax, depreciation and amortization; this is a lofty valuation compared to First Data at less than 12x EBITDA and fellow payments company Vantiv, which trades at 12.5x EBITDA. The Wall Street Journal notes that Worldpay could grow through various services, including helping small businesses maintain their books more efficiently and obtain loans through specialists who use Worldpay's data.